In order to start Setsuna’s sidequest, put her in your active party and visit her father’s house in Nive Village. There will be a lengthy conversation that is carried out and once everything is said, your next destination will be Dazzshire Woods. From the entrance of the woods, you will trigger a short scene right by the locked chest just to the north of you.
Pass through the secret trail and be careful of the King Empy just to your south. This is kind of like a secret boss and it isn’t too bad at this point in the game, although it does have a lot of health. However, it is quite prone to status ailments and debuffs, so you can use those to pretty much halt it while you whittle its HP down to nothing. Anyway, go north and watch the cutscene at the end of the short trail to get Holy Light for Setsuna.
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